Today, the Bitcoin price once again reached a new all-time high of over $40,000. Exceedingly remarkable, just think that less than a month ago the price per BTC had broken through the $20,000 mark for the first time since 2017. In fact, the Bitcoin price has quadrupled in value since the start of its current rally in October.
Anyone who has been dealing with Bitcoin for a while and has tried to make it palatable to friends and acquaintances at the bargain prices of the time knows only too well what a difficult to impossible undertaking that was in some cases. But currently the situation looks quite different. These same people are suddenly calling from everywhere and asking what is going on with the Bitcoin price, why it is rising so strongly and whether it will soon collapse again.
Justified questions, because although for crypto enthusiasts the value of Bitcoin is obvious, even die-hard crypto traders currently find it difficult to assess whether the current price is justified or not. Will it continue to rise or will it soon start a major correction?
These are exactly the questions we want to address in this article, taking a look at the assessments of several experts.
Why is the Bitcoin price currently rising?
Bitcoin was invented just 12 years ago as a new type of electronic payment system. It is based on an internet-based computer network that no single person, company or government can control. The reality is that the trading history of the cryptocurrency Bitcoin is so short, and the methods for valuing the asset are still largely untested, that no one really knows for sure what it should be worth now or in the future.
That hasn’t stopped digital asset investors and even Wall Street analysts from making Bitcoin price predictions that range from $50,000 to $400,000 or even beyond.
But the whole thing isn’t just plucked out of thin air, either. There are some good and understandable reasons why the Bitcoin price has been rising recently. Some of the most important of these, let’s look at now.
Bitcoin as a hedge against inflation
Alright, institutional investors are not new per se, however, their demand for Bitcoin is higher than ever before.
Many institutional buyers now view Bitcoin as a hedge against inflation. Most notably, MicroStrategy’s investments in BTC have popularized this view in the corporate world and beyond.
Bitcoin’s protocol states that no more than 21 million BTC can ever be created. This is in stark contrast to the policies of central banks around the world who seem to want to „print their way out“ of the current crisis. However, anyone with even a scintilla of knowledge knows that value cannot be created out of thin air. That means that while the money supply is increasing, the accumulated value of that money supply is not. The logical consequence of this is that the same value is divided among several units. In other words, the money becomes more and more, but at the same time loses value. The whole thing is called inflation. However, this has not been at the targeted 2% for a long time.
This effect is also reinforced by the fact that the economy has been virtually paralyzed worldwide in many industrial sectors. This means that the money supply is currently not only being drastically increased, but at the same time production is being drastically reduced. However, the production rate should grow together with the inflation rate in order to be able to guarantee a certain price stability. However, if the production rate falls drastically while the money supply increases disproportionately, this can have devastating consequences.
Major asset managers such as Tudor Investment and Guggenheim Partners have announced bitcoin legacy purchases or bet on prices with futures contracts on the CME exchange in Chicago for these reasons. Even long-established Wall Street firms like Morgan Stanley have spoken out with bullish statements for the leading cryptocurrency. For example, analysts at JPMorgan Chase, the largest U.S. bank, recently predicted a Bitcoin price of $146,000.
The decline of the U.S. dollar is playing into the hands of the Bitcoin price
The U.S. Dollar Index, a measure of the dollar’s value against major world currencies such as the euro and Japanese yen, fell 6.8% in 2020 and is expected to fall further in 2021. First and foremost, the Bitcoin exchange rate is denominated in U.S. dollars. So, if the dollar loses value, the price per BTC increases against it.
We have already touched on why the US dollar is losing value above. Specifically, though, it’s falling more than other fiat currencies because the Federal Reserve printed more than $3 trillion last year, which is about three-quarters of the total amount previously created in the Fed’s 108-year history.
That needs to be digested, so I’ll repeat it again: the amount of money printed in the U.S. last year is 75% of the amount previously created over a period of more than 100 years.
The images of protesters storming the U.S. Capitol on Wednesday probably didn’t burnish America’s leadership role on the world stage, and now many economists are predicting that big spending plans under a Democrat-controlled administration could lead to new stimulus programs and potentially outsized budget deficits for years to come. Much of these additional costs could be financed by the Fed. Or, to put it more casually, it will simply print even more money.
Buying bitcoin is easier than ever
Many individuals are now speculating on the Bitcoin price, and it has become increasingly easy for them to do so. Buying Bitcoin used to be a not-so-simple endeavor and came with many question marks. Now it is easier than ever before. In some parts of the world, it is even already possible via PayPal to buy Bitcoin at the push of a button. This is also the case in the USA.
Analysts at digital asset firm ByteTree noted this week that blockchain data shows a high concentration of bitcoin purchases amounting to $600. That’s pretty much the same amount as the U.S. stimulus checks sent out in the recent U.S. coronavirus emergency package.
All of this may have led to a huge rally in recent months. But could it all have been too fast? Has another bubble formed here that could burst at any moment and crash the Bitcoin price? Let’s take a look at what various experts have to say about this.
Bitcoin price facing a collapse? This is what the experts think
The Bitcoin price is volatile by nature. Significant and unexpected price fluctuations are the order of the day here. Unfortunately, this does not make it easier to better assess the current situation. That’s why below we want to take a look at a number of assessments from analysts & financial experts about what a market correction might look like and what might cause it.
Bitcoin „has been and will remain extremely volatile.“
Those were the words of Joe DiPasquale, the CEO of BitBull Capital, a hedge fund focused on cryptocurrencies. Just recently this Monday, he noted that the Bitcoin price, after climbing to a new all-time high, plunged again by nearly $7,000.
„What’s causing that is that people are using a lot of leverage, which makes it easy to get washed out [of the market].“
And that’s exactly what happened. The abrupt price correction in Bitcoin caused $190,000,000 worth of long positions to be liquidated in 10 minutes on Binance alone.
Joe DiPasquale still thinks a major correction is possible, although there seem to be many interested buyers around $28,000, so this level could form a possible support zone.
Bitcoin price could still double or triple in value
Mike Venuto, co-portfolio manager of the Amplify Transformational Data Sharing Exchange Traded Fund, which invests in blockchain-related stocks, believes the bitcoin price could actually double or even triple from its current level before falling back to roughly where it is now. That would imply a retracement of more than two-thirds from that hypothetical new all-time high.
What makes a crash more likely is an overshoot on the upside. I don’t think we’re there yet.
„The swings will be wild“
Denis Vinokourov, head of research for cryptocurrency prime broker Bequant, said:
There will be fluctuations and yes, the fluctuations will be wild. There is a large flow of retail traders who tend to panic.
He believes the bitcoin price will rise in the long run. At least in part due to bullish expectations from major Wall Street firms. But he doesn’t want to rule out even extreme price drops in the short term.
Can it go to $4,000? Yes.
One potential trigger for a quick sell-off could be a lawsuit filed by authorities against the company behind Tether, in particular. Its cryptocurrency USDT is a privately issued digital token pegged to the U.S. dollar and thus falls under the category of „stablecoins.“ Tether has grown to become a major source of liquidity in the digital asset markets, making it a significant component of the overall market.
That governments are not fans of privately issued stablecoins has already been shown by the Facebook debacle. For some time now, the social media giant has been trying to launch its own digital currency and has met with vehement resistance from state authorities around the world. It is therefore not surprising that the New York State Attorney General’s Office is currently also taking action against Tether in court.
The history of financial markets is the history of bubbles
James Angel, finance professor at Georgetown University, indicated that authorities could curb the Bitcoin price rally if they are worried about it becoming a threat.
Almost everyone who tries to start their own money does so in competition with a national currency, and it is usually sidelined by regulators.
While currently stablecoins are already being targeted by the states, Bitcoin could probably face something similar. Similar and not the same, as there is no single issuer behind Bitcoin in the form of a person or company. Nevertheless, it would probably be presumptuous to believe that governments could not harm the development of the Bitcoin price.
Realization of profits could lead to slumps
Guy Hirsch, managing director for the U.S. at trading platform eToro, said:
„There will likely be profit-taking along the way, causing temporary dips. But given the extraordinary amount of adoption by institutions, it would be a surprise to see Bitcoin drop below $20,000 anytime soon.“
So we can see that even experts are struggling to make an accurate assessment of the current state of the market, and more specifically, the Bitcoin price. There is a lot of uncertainty in the market, also due to external factors. But it is precisely this uncertainty and the associated risk that makes Bitcoin so charming, because without it we would never have seen a rise like the current one.
No matter whether the Bitcoin price will now collapse at around $40,000 or continue to rise. What is clear is that the correction will come sooner or later, and the higher the price rises, the more drastic the subsequent slump will be. At the same time, however, the experts agree that in the long term the direction is upward. If only because of the consequences of the current monetary policy that have been mentioned here, which will not be so easily eliminated in the coming years.